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USD/INR Tops 74.00 As Q3 GDP Contracts, COVID-19 Infections Jump

November 27, 2020 at 18:41 by Andrew Moran

Indian rupee denominationsThe Indian rupee is weakening against its US peer at the end of the trading week, driven mostly by the continuing economic contraction and the rising number of coronavirus infections. The rupee has joined the rest of the emerging market currencies by slumping in 2020 amid the financial crisis. But with growing confidence in the broader financial market, the rupee has found support among EM currencies in November.

According to the Ministry of Statistics and Programme Implementation (MOSPI), the Indian economy tumbled 7.5% year-over-year in the third quarter, coming in better than the median estimate of -8.8%. This is also an improvement from the 23.9% crash in the second quarter. The GDP posted a better-than-expected reading on easing coronavirus restrictions this past summer, as well as a rebound in manufacturing and utilities, which were the only two sectors to report growth.

The developing market experienced declines in private spending, investment, mining, construction, and professional activities. Early estimates suggest that the GDP will likely slump further in the fourth quarter, despite the government launching a $10 billion stimulus package last month.

In other data, infrastructure output slipped at an annualized rate of 2.5% in October, down from the 0.1% dip in September. Foreign exchange reserves came in at $575.29 billion in the week ending November 20, up slightly from $572.77 billion in the previous week.

Next week, manufacturing and non-manufacturing purchasing managers’ index (PMI) readings will be released. The Reserve Bank of India (RBI) will also hold its December policy meeting, and experts anticipate officials will leave interest rates unchanged at 4%.

Although India has done a better job of reining in the coronavirus pandemic, new daily infections continue to be noteworthy. On Thursday, India reported more than 44,000 confirmed cases, raising the total number to 9.31 million, with a death toll of 136,000. After sliding to a five-month low, new cases of the highly infectious respiratory illness have risen to a two-week high.

Meanwhile, foreign exchange markets will be keeping an eye on foreign fund inflows data. Observers believe the flows will slow down, which could weaken the rupee in the coming weeks.

The USD/INR currency pair rose 0.23% to 74.0090, from an opening of 73.8366, at 17:30 GMT on Friday. The EUR/INR advanced 0.57% to 88.47, from an opening of 87.97.

If you have any questions, comments, or opinions regarding the Indian Rupee, feel free to post them using the commentary form below.

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